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More than five years after the intervention of the CBN led to the acquisition and forced merger of some banks, the legacy issues associated with the nation’s apex monetary authority’s decision are still lingering
By Osaze Omoragbon
Back in August 2009, barely three months into what turned out to be the most tumultuous tenure in the Central Bank of Nigeria, Sanusi Lamido Sanusi who was then Governor of the CBN shocked the nation when he announced the sack of the executive management of five banks. A month later, three more chief executives were also fired. Hitherto leading bankers were shown the door.
Five years after the intervention and eight months after the change in the leadership of the CBN, the legacy issues associated with the apex bank’s intervention are still lingering. While some of the intervened banks have been absorbed through forced merger and acquisitions, others are still being vigorously contested in the courts.
The lingering litigation, according to industry watchers, could be hampering the efficient operations of some of the banks. Expansion plans are said to be hinged on the resolution of the court cases even as asset depreciation eats away at the balance sheets of the banks, though sources say CBN used its approval power to restrict branch expansion even as some banks stopped branch expansion on their own volition. Assets of some of the acquired banks are lying fallow across the country; burdening balance sheets. Some of the banks are said to be restrained through stay-of-execution order of the courts. What worry most analysts are the economic costs of the decay.
Impact of neglect
Investigations by TheEconomy reveal that some of the properties of the acquired banks are held on long-term lease. The opportunity cost in terms of income that could be earned from lease or rent, analysts say, could go a long way to palliate any loss incurred during merger and acquisitions processes of the banks. “Most of these defunct bank branches still have their fittings intact. However, they are depreciating fast,” says Jide Alabi, a security officer keeping watch at a disused bank facility.
Interestingly, observers say several of the properties belong to the defunct Intercontinental Bank which was acquired by Access Bank Plc and the nationalized Bank PHB; whose takeover by the apex bank are still being vigorously contested in the courts. The acquiring banks are said to have developed cold feet in disposing the assets due to lingering court cases. “Reversing the decision of the CBN to take over the banks by a court order could deal a serious blow to the parent banks,” says a top banker who prefers anonymity. However, disused assets of the nationalized banks are the property of the Asset Management Corporation of Nigeria (AMCON), who took on the toxic assets of the banking sector. Though AMCON is set to dispose of the nationalized banks, as it recently selected 11 financial advisers to that effect, valuation of the asset, according to experts, could be the Achilles heel of the process. Industry sources claim some of the disused assets of the banks might not be unconnected to poor valuation of assets and liabilities. “We lack an industry for proper asset valuation. Valuation companies have incentive to skew valuations in ways that benefit them especially if their fees are tied to volume,” says Thomas Ajose, a financial analyst.
Few doubt the smooth take-over of the banks as claimed by the apex bank. Save for Sterling Bank’s takeover of former ETB, other merger and acquisition processes are fraught with issues. In the case of ETB-Sterling merger, both banks streamlined their assets such that branches in the same vicinity moved into a property owned by either of the two while closing down a property under lease. Under-declaration and under-representation of assets are not uncommon with merger and acquisition processes across the globe. Experts say, however, that due diligence conducted by specialized firms are thought to resolve discrepancies. It is tricky even for expert firms to be able to do a thorough job as exemplified by the recent $80million write-off from the value of Dangote Flour which was acquired by Tiger Brands, a South African firm in 2012. Some parties to merger or acquisition transaction are said to be adept at hiding assets such that they play up the value of decrepit assets for those that want to have leverage in merger transaction while those who are about to be acquired hide assets.
Interestingly, some of the disused banks’ assets are not only those of the intervened banks. Wema Bank, which has vacillated between operating a regional banking license and a national banking license, has some of its buildings still lying fallow especially in the northern part of the country; where it currently does not operate. The bank has not operated in its location outside the regions it obtained regional banking license –South-South and South West–in the last three years, in the processes losing millions of naira to earned income from lease or rent. Observers say the bank didn’t dispose of its assets outside its region of operation because it has set its eyes on acquiring a national license down the line. “The bank was just shoring up its balance sheet under the pretext of operating a regional license. And now we can see it has applied for a national license,” says Eugene Atani, a stock broker.
The case of Savannah Bank and Societe Generale Bank are even more pathetic. Since their closure several years ago, their properties have fallen into decay. Some of the branches are in a state of disrepair such that millions of naira will be spent restoring the assets not to mention the amount that could have been earned if the properties were leased or rented. Indeed, hawkers, rodents and destitute have taken over some of the properties, converting them into makeshift homes and stalls. Multi-billion investments laid waste as Savannah Bank had 140 branches when its license was withdrawn by the CBN in February 2002 and restored seven years later. Savannah Bank is yet to commence operations even after its license was restored by a court order. Though the Societe Generale Bank has metamorphosed into Heritage Bank, the latter still operates fewer than half of the number of branches the former operated which shows that the buildings are either still lying fallow or have been sold by the new owners for scrap.
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